Year End Rules for IRAs

Individual Retirement Accounts are an important way to save for retirement. If you have an IRA or may open one soon, there are some key year-end rules that you should know.

Contribution Limits: You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. In some cases, you may need to reduce your deduction for traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level. You have until April 15, 2016, to make an IRA contribution for 2015.

* Excess Contributions: If you contribute more than the IRA limits for 2015, you are subject to a six percent tax on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2015 tax return (including extensions).
* Required Minimum Distributions: If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take an RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2015. That deadline is April 1, 2016, if you turned 70½ in 2015. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.
* Non-deductible IRA Contribution Strategy: Regardless of your income level and participation in another retirement plan, you can contribute to a non-deductible IRA and consider converting this non-deductible IRA to a Roth IRA thereafter. This is a nice strategy for higher income taxpayers that cannot contribute directly to a Roth IRA. Please note that if you have other IRA accounts, the conversion to a Roth IRA may be partially taxable as it will need to be prorated in consideration of all your IRA accounts.

We would be happy to review with you any questions you may have regarding Individual Retirement Accounts.